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TerraNova • India Compliance Markets

India CAFE Norms: II, III, and the OEM Credit Market

A seven-part guide to India's Corporate Average Fuel Efficiency norms — the CAFE-II baseline, the CAFE-III step-change from FY28, OEM-by-OEM cost exposure, and the new credit market modelled in full.

By Climate Decode • Updated

7 Articles • India's Largest OEM Compliance Driver
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Start Here•Market Snapshot•More in the Series•About Climate Decode•TerraNova

Start Here

Foundational • Part 1

The CAFE Primer

The CAFE rulebook from first principles — the four converging policy goals, the BEE/MoRTH split, the legal foundation in the Energy Conservation Act, and the 113 g/km CAFE-II baseline running through FY27.

By Climate Decode • • 10 min read

Read the Primer →

What You'll Learn

▶ Why India built CAFE (4 policy goals)

▶ BEE designs, MoRTH enforces, ARAI tests

▶ The 113 g/km CAFE-II baseline

▶ EC Act 2022 penalty schedule

▶ Why enforcement has been soft so far

▶ Where India sits between US and EU

The Market in Three Numbers

India PV OEMs face the steepest fuel-efficiency tightening in any major market — 30% in five years.

78.9 g

FY32 fleet target (CAFE-III final)

3.0×

BEV super-credit multiplier

₹8-15K Cr

Cumulative penalty exposure FY28-32

Sources: BEE CAFE-2027 draft · ARAI AIS:175 · EC (Amendment) Act 2022 Section 26 · Climate Decode CAFE Market Model (June 2026).

The Target Curve in One Picture

From 113 g/km MIDC under CAFE-II to 78.9 g/km WLTP by FY32 — through the WLTP regime change at FY28.

CAFE-III · WLTP708090100110120113.088.484.782.076.471.5FY27FY28FY29FY30FY31FY32g CO₂/km
India CAFE-II to CAFE-III target curve. Headline tightening of ~30% over five years — with WLTP adding another ~18% to ICE readings beneath the surface.

More in the Series

Six articles covering the step-change, the OEMs, the open issues, the costs, the credit market, and the platform.

Part 2 • The Step-Change

CAFE-III Mechanics: What Changes on 1 April 2027

The CAFE-III step-change — the 105→78.9 g target curve, the WLTP transition, super-credits at 3.0x BEV, 17 off-cycle technologies under a 6 g/km cap, and OEM-to-OEM credit trading.

What's Covered

•  105 to 78.9 g/km target curve over FY28-32 (30% reduction)

•  WLTP via ARAI AIS:175 adds ~18% to ICE CO2 readings

•  Super-credits: 3.0x BEV, 2.5x PHEV, 1.6x SHEV, 1.0x MHEV

By Climate Decode • June 2026 • 12 min read

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Part 3 • The OEM Landscape

Where the 15 PV OEMs Sit on the CAFE Curve

OEM-by-OEM positioning across CAFE-II margin, BEV mix, curb weight, and the 5-year strategic role each will play in the new credit market.

What's Covered

•  Maruti at 1.82M units — lightest fleet, tightest target

•  Tata at 11.6% BEV — structural credit seller, ~₹15K Cr surplus

•  Premium Europeans (Skoda-VW, Mercedes, BMW) lobbying for pooling

By Climate Decode • June 2026 • 11 min read

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Part 4 • The Issues

The Five Open Issues That Will Define CAFE-III

What is still contested in the BEE draft — super-credit policy stability, mass-curve fairness, WLTP data validation, pooling provisions, and the enforcement question.

What's Covered

•  Super-credit haircut risk — the policy uncertainty that drives base-case vs EU phase-out

•  Mass-curve fairness: Maruti at 88g, Mercedes at 89g for 2× weight

•  Why no CAFE-II penalty has been formally levied yet

By Climate Decode • June 2026 • 10 min read

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Part 5 • The Cost

Per-OEM CAFE-III Cost Exposure

Industry-wide ₹8,000-15,000 Cr cumulative penalty exposure FY28-32, plus capex requirements per major OEM and the PLI/FAME/GST incentive stack that offsets it.

What's Covered

•  Maruti ~₹1,500 Cr likely cost (SHEV mitigates 3+ g/km exposure)

•  Capex ~₹3,500-5,000 Cr Tata, ₹5,000-7,000 Cr Maruti

•  Incentive stack: ~₹5.6L value per Nexon EV (GST + PLI + state + super-credit)

By Climate Decode • June 2026 • 11 min read

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Part 6 • The Market

The 5-Year CAFE Credit Market, Modelled

Four-scenario supply-demand model with full clearing math — from the base-case ₹12,360 Cr OTC value to the ₹31,730 Cr EU-style super-credit phase-out.

What's Covered

•  Base case (3.0x flat): S/D 7.03, clearing at ₹2,500 floor

•  EU phase-out (3.0→1.0): S/D 0.85, clearing toward ₹4,500 ceiling

•  Penalty formula, mass-curve formula, market clearing logic in full

By Climate Decode • June 2026 • 13 min read

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Part 7 • The Platform

TerraNova for CAFE: The Compliance Workspace

TerraNova adapted end-to-end for India CAFE — onboarding, dashboard, decarb-lever planning, Compliance Manager projections, and the market-watch view across CAFE-II and CAFE-III block periods.

What's Covered

•  4-step onboarding to baseline OEM fleet under both regimes

•  MAC-ranked decarb-lever portfolio + scenario engine

•  BEE-format submission export and peer-OEM positioning

By Climate Decode • June 2026 • 9 min read

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TerraNova for CAFE

Climate Decode's compliance carbon platform adapted for India CAFE. End-to-end coverage: dashboard across CAFE-II and CAFE-III, decarb-lever planning under super-credits, Compliance Manager projections, and the 5-year OEM-to-OEM credit market view.

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